Court Rejects Blanket Ban on In-House Lawyers' Whistleblower Claims

Ruling sets a high threshold for employees responsible for investigating and reporting wrongdoings.

By Melissa Maleske|August 20, 2010 at 12:00 AM

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Eighteen months after hearing arguments in the case, on June 24 the Minnesota Supreme Court delivered its long-awaited decision in Kidwell v. Sybaritic. The case asked whether an attorney employed in-house can be protected under Minnesota’s whistleblower statute in light of the fact that reporting legal violations is part of an in-house lawyer’s regular job duties.

But when it finally came down, the opinion may not have provided all that was hoped for by Minnesota legal practitioners.

“It was a plurality opinion, plus it didn’t touch on a whole slew of other issues that arguably were implicated,” says Roy Ginsburg, a partner in Dorsey & Whitney’s Minneapolis office.

The opinion did make a few things clear: Although it said the complainant’s job duties were relevant to the issue, the state Supreme Court would not adopt an absolute ban on in-house attorneys bringing whistleblower claims, which other jurisdictions have endorsed. But the court set a high threshold.

“There is going to be a high burden on an employee who has responsibility for investigating and reporting wrongdoing in a particular area to bring a whistleblower claim that touches upon that specific area,” Ginsburg says. “It’s going to be a more nuanced analysis.”

A Difficult Duty

The Minnesota Supreme Court found that Brian Kidwell could not meet that burden. Kidwell took the GC spot at spa products manufacturer Sybaritic in July 2004. His role was to provide “advice on any legal affairs of the company,” Kidwell later told a courtroom. So he saw it as his duty to notify Sybaritic management about what he saw as a “pervasive culture of dishonesty” at the company.

In an April 2005 e-mail entitled “A Difficult Duty,” Kidwell outlined that the company had failed to investigate dishonest salespeople, allowed an employee to engage in the unauthorized practice of medicine and failed to pay taxes it owed in California. Those issues fell outside his area of responsibility, but he had also become aware of activity he had a responsibility to report. Kidwell wrote that he believed Sybaritic was obstructing discovery of e-mails that were crucial to ongoing company intellectual property litigation.

Kidwell also sent a copy of the “Difficult Duty” e-mail to his father, a retired businessman in whom Kidwell had confided the ethical dilemma he faced.

After management received the e-mail, they developed a framework to resolve the issues it had raised. But three weeks later, Sybaritic fired Kidwell. Management testified Kidwell reported finishing work that he had not actually completed, failed to pay law firm invoices and left for vacation without completing a required job task. While Kidwell was on vacation, a Sybaritic manager perused Kidwell’s e-mails for information about the unpaid invoices and discovered Kidwell had sent a copy of the “Difficult Duty” e-mail to his father. Management decided to terminate Kidwell’s employment because they felt the company could no longer trust him.

Kidwell called those reasons for his termination pretextual and brought an action against Sybaritic under the Minnesota whistleblower statute, which protects employees from termination for reporting in good faith a suspected or actual legal violation to an employer, governmental body or law enforcement official.

A jury awarded Kidwell $197,000 in damages, but the court of appeals reversed, holding that Kidwell was merely fulfilling his job responsibilities when he reported the violation and thus it was not protected conduct under the state whistleblower statute.

The state Supreme Court relied on analysis of the federal Whistleblower Protection Act–fairly analogous to the state law for purposes of comparison–that the Federal Circuit set forth in 2001 in Huffman v. Office of Personnel Mgmt. In that case, the court said that an employee who “has, as part of his normal duties, been assigned the task of investigating and reporting wrongdoing by government employees and, in fact, reports that wrongdoing through normal channels” is not engaging in protected conduct.

Under that analysis, Kidwell’s conduct was not protected, the majority concluded, citing Kidwell’s testimony that he had sent the e-mail because “as the person responsible for the legal affairs of the company, that’s what I had to do.”

Specifics and Ambiguities

In addition to rejecting a blanket job duties exception, the court also set forth a few circumstances under which an employee with compliance/legal reporting duties may still be protected under the whistleblower statute: if the report was made outside the employee’s regular channels or if it fell outside the scope of the employee’s normal job duties.

“The opinion parses out words this employee used in his e-mail complaint and in court,” says Jody Ward-Rannow, a lawyer at Ogletree Deakins who has followed the case closely. “It’s going to come down to a very specific [case-by-case] analysis.”

An additional twist in Kidwell is how the justices fell: A three-justice plurality took the above stated reasoning, but the fourth took another route in his concurrence, saying Kidwell’s claim was barred because he had breached his fiduciary duty and the ironclad attorney-client privilege by routing the “Difficult Duty” e-mail to his father.

“If you take out that analysis, you’re left with a 3-3 split,” Ginsburg says. “There are lessons to be derived from the case–but it will require some additional decision-making [by the courts] and case-by-case analysis to shed more light on this area.”

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